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$A falls on lower than expected inflation

Belinda Merhab

The Australian dollar has fallen after lower than expected inflation figures reduced the likelihood of a rate hike in the near future.

At 1700 AEST on Wednesday, the local currency was trading at 92.80 US cents, down from 93.67 US cents on Tuesday.

The consumer price index rose 0.6 per cent in the March quarter, for an annual rate of 2.9 per cent.

Economists had expected a rise of 0.8 per cent for the quarter and 3.2 per cent for the year.

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The lower than expected figures took pressure off the Reserve Bank to raise rates from the current record low of 2.5 per cent, ANZ senior FX strategist Daniel Been said.

"When we got a downside surprise on the CPI, which goes against the recent trend of positive surprises for the economy and speculation that the RBA could hike rates, it drove the Aussie lower," Mr Been said.

"It's taken a bit of the pressure off the central bank to raise rates in the absence of strong activity data."

At 1700 AEST, the Australian dollar was at 95.20 Japanese yen, down from Tuesday's close of 96.00 yen, and at 67.17 euro cents, down from 67.86 euro cents.

"We went into the CPI print with bond yields higher and most of the domestic market were expecting a much stronger print," Mr Linton said.

"The data came out significantly weaker and the market has been rallying most of the rest of the afternoon.

"People were looking for the CPI to be the smoking gun for rate hikes but this weak print takes CPI back into the comfort range of the RBA.

"There was increasing noise among commentators about the RBA being forced to hike rates in 2014 to combat high CPI but with the low print, that potential necessity for the RBA to hike rates has been reduced, hence the lower yields in Aussie bonds."

At 1630 AEST on Wednesday, the June 2014 10-year bond futures contract was trading at 96.035 (implying a yield of 3.965 per cent), up from 95.990 (4.010 per cent) on Tuesday.

The June 2014 three-year bond futures contract was at 97.040 (2.960 per cent), up from 96.980 (3.020 per cent).